GUJARAT MARITIME BOARD,,GANDHINAGAR vs. THE DY. COMMISSIONER OF INCOME TAX (EXEMPTIONS), CIRCLE-1,, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE DR. B.R.R KUMAR, VICE PRESIDENT & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER Sl. आयकर अपील िनधा�रण वष�/ Appeal(s) by : No(s) सं/ Assessment अपीलाथ� / ��थ� / Year(s) ITA No(s) Appellant बनाम/vs. Respondent 1. ITA No. 2017-18 Gujarat Maritime The DCIT (Exemption), 440/Ahd/2022 Board, Circle-1 Sagar Bhavan, Ahmedabad Opp. Airforce Station, Sector 10A, Gandhinagar Gujarat – 382 010 PAN: AABCG6676L (Assessee) (Revenue) 2. ITA No. 2018-19 Gujarat Maritime The DCIT (Exemption), 117/Ahd/2023 Board, Circle-1 Sagar Bhavan, Ahmedabad Opp. Airforce Station, Sector 10A, Gandhinagar Gujarat – 382 010 PAN: AABCG6676L 3. ITA No. 2019-20 Gujarat Maritime The DCIT (Exemption), 118/Ahd/2023 Board, Circle-1 Sagar Bhavan, Ahmedabad Opp. Airforce Station, Sector 10A, Gandhinagar Gujarat – 382 010 PAN: AABCG6676L 4. ITA No. 2017-18 The DCIT (Exemption), Gujarat Maritime 561/Ahd/2022 Circle-1 Board, Ahmedabad Sagar Bhavan, Opp. Airforce Station, Sector 10A, Gandhinagar Gujarat – 382 010 PAN: AABCG6676L 5. ITA No. 2018-19 JCIT (OSD), Exemption, Gujarat Maritime 211/Ahd/2023 Circle-1, Ahmedabad Board, Sagar Bhavan, Opp. Airforce Station,

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 2 Sector 10A, Gandhinagar Gujarat – 382 010 PAN: AABCG6676L 6. ITA No. 2019-20 JCIT (OSD), Exemption, Gujarat Maritime 212/Ahd/2023 Circle-1, Ahmedabad Board, Sagar Bhavan, Opp. Airforce Station, Sector 10A, Gandhinagar Gujarat – 382 010 PAN: AABCG6676L Assessee by : Shri S.N. Soparkar, Sr. Advocate & Ms. Ukti Shah, ARs Revenue by : Shri Rignesh Das, CIT-DR सुनवाई की तारीख/Date of Hearing : 06/05/2026 घोषणा की तारीख /Date of Pronouncement: 13/05/2026 आदेश/ORDER PER: SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- The captioned cross-appeals have been preferred by the Assessee and the Revenue against the separate orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’], dated 19/09/2022, 30/01/2023 & 02/02/2023 pertaining to different Assessment Years (AYs) 2017-18, 2018-19 & 2019-20 respectively. Since common facts and issues are involved in all these appeals, these were heard together and are being disposed of by a consolidated order.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 3 investments, the claim of depreciation on fixed assets and the treatment of tax deducted at source in the computation of income.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 4 as well and held that, independently of the proviso to section 2(15) of the Act, the assessee was disentitled to exemption under sections 11 and 12 of the Act.

5.1. The Assessing Officer also examined the computation of income in relation to tax deducted at source and observed that the assessee had reduced or claimed benefit of TDS amounting to Rs. 49,69,11,568/- while the corresponding receipts were already included in gross income. The Assessing Officer was of the view that the assessee was assessed as an Association of Persons and that, under section 198 of the Act, tax deducted at source is deemed to be income received by the assessee, he held that the assessee could not again reduce that amount in computation. Accordingly, the Assessing Officer added the entire sum of Rs. 49,69,11,568/- to total income and penalty proceedings were again initiated.

5.2. On the basis of denial of exemption under sections 11 and 12, invocation of section 13(1)(d), disallowance of depreciation and addition of TDS, the

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 5 Assessing Officer recomputed the total income at Rs. 4,75,88,42,670/- and raised demand accordingly.

7.1. While dealing with the addition of Rs. 49,69,11,568/- on account of TDS, the Commissioner (Appeals) noticed that in earlier years the Tribunal had deleted similar additions in the assessee’s own case. Applying the principle of judicial discipline and consistency, CIT(Appeals) held that the Assessing Officer was bound to follow those decisions even if appeals of the Department were pending before the High Court. He therefore directed deletion of the entire TDS addition.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 6 behind this amendment and to judicial pronouncements explaining its prospective operation, CIT(Appeals) held that for Assessment Year 2017-18 the provision was clearly applicable and that the Assessing Officer was justified in disallowing depreciation once the capital cost of the assets had already been treated as application of income. Accordingly, CIT(Appeals) confirmed the disallowance of Rs. 30,47,53,583/- and dismissed the assessee’s ground on this issue.

10.1. The Ld. CIT(A) also dealt with the grievance relating to short grant of TDS credit of Rs. 1,55,50,896/- and directed the Assessing Officer to verify the figures from Form 26AS and allow further credit, if admissible, while giving effect to the appellate order.

10.2. To sum up the facts of case, in the assessment order the Assessing Officer had denied exemption under sections 11 and 12 of the Act by applying the proviso to section 2(15), invoked section 13(1)(d) of the Act for alleged violation of

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 7 section 11(5), disallowed depreciation of Rs. 30,47,53,583/-, added back TDS of Rs. 49,69,11,568/- and recomputed the income at Rs. 4.75 billion. In the first appellate order the Commissioner (Appeals) granted relief on the issues of exemption and section 13(1)(d) of the Act, deleted the TDS addition and directed verification on dividend and short-grant of TDS credit, however, confirmed the disallowance of depreciation under section 11(6) of the Act.

(i) Grounds No.1 Whether in the facts and in the law the Ld.CIT(A) was right in holding that the assessee is eligible for deduction u/s.11 & 12 of the Act ignoring the facts that the assessee is hit by proviso to section 2(15) of the I.T. Act-1961 and therefore r.w.s.13(8) of the Act was not eligible for any deduction u/s.11 & 12 of the Act, especially of the fact that it is rendering services not at cost or nominal markup and carrying out its activity in commercial manner with profit motives? (ii) Ground No.2 Whether in the facts and in the law the Ld.CIT(A) was right in remitting the issue of taxation of dividend without any specific finding to be decided de-nova when he has no power to set aside the issue and also ignoring the provisions of section 11 of the Act? (iii) Ground No.3 Whether in the facts and in the law the Ld. CIT(A) was right in holding that the AO was incorrect in invoking provision of section 13(1)(d), when the Assessing Officer had given categorical finding that the investment was made in contravention to provision of section 11(5) r.w.s. 13(1)(d) of the Act? (iv) This is further to certify that the tax effect involved in the present case is Rs. 54,46,76,650/- which is above the monitory limit specified in the CBDT's Circular no. 17/2019 dated 08.08 2019 13. Before us, the assessee has raised the following Grounds of Appeal: i. Ld. CIT(A) erred in law and on facts in confirming addition of Rs. 40,62,80,024 being Depreciation as per Income-tax Act, 1961 which had never been claimed and granted as an application of income under Section 11(6) in same or any earlier previous year. ii. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 8 14. We observe that facts and issues for consideration are common all assessment years before us and accordingly our observations for assessment year 2017-18 will also apply to other years before us.

We shall first discuss Grounds of Appeal raised by the Department:

Ground Number 1: CIT(Appeals) erred in holding that the assessee is eligible for deduction u/s 11 and 12 of the Act ignoring that the assessee is hit by Proviso to section 2(15) r.w.s. 13(8) of the Act because the assessee is rendering services in a commercial manner and for profit motives

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 9 16. The Ld. Departmental Representative further relied on paragraph 190(iii) of the said judgment to contend that the Hon’ble Supreme Court has categorically held that even statutory corporations, boards and authorities may be engaged in business activities. He also referred to paragraph 190(iv)(f) to submit that statutory bodies can continue to be characterised as GPU charities only so long as the activities generating profits remain within the prescribed twenty per cent limit and the surplus generated is not significantly higher than cost, besides satisfying the other statutory conditions under section 11 and the seventh proviso to section 10(23C). According to Ld. Departmental Representative, this makes it clear that mere statutory origin or public utility object does not by itself insulate an authority from being treated as carrying on business if the scale and margins of its activities show otherwise.

16.1 He then submitted that though the Supreme Court had dismissed the Department’s appeals for certain assessment years in the Ahmedabad Urban Development Authority batch, the Revenue had thereafter filed a Miscellaneous Application seeking clarification as to whether fresh assessments could be made for other years by applying the law declared. Ld. Departmental Representative pointed out that by order dated 03.11.2022 the Hon’ble Supreme Court clarified that its conclusions were final only for the specific assessment years before it and that for other years the authorities were free to apply the law declared in the judgment after examining the facts of each year independently. On the strength of this clarification, the Ld. Departmental Representative argued that the Department is fully entitled to examine the assessee’s activities year by year and to test them against the amended proviso to section 2(15) of the Act.

16.2 Coming to the facts of the present year, Ld. Departmental Representative submitted that a perusal of the income and expenditure account of the assessee clearly demonstrates that it is engaged in large-scale commercial operations. He

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 10 placed before the Bench a tabulation showing that the assessee’s total receipts for the year amounted to Rs.747,91,16,269/-, comprising substantial receipts from port infrastructure, marine services, clearing and stevedoring, storage and land rentals, harbour craft rentals, ship recycling yard, ship building yard, other port services and Government administrative charges, apart from interest and financial income. He pointed out that even after excluding interest and financial income, the operational receipts alone aggregated to Rs.571,90,98,708/-, which themselves far exceeded the twenty per cent threshold contemplated by the proviso to section 2(15) when compared with the total receipts of the year. He further submitted that the twenty per cent limit of the total receipts worked out to Rs.149,58,23,253.80, whereas the assessee’s operational receipts were several times higher, thereby clearly breaching the statutory ceiling. In addition, Ld. Departmental Representative highlighted that the assessee had disclosed a net surplus of Rs.366,72,34,700/- on total receipts of Rs.747,91,16,269/-, resulting in a profit margin of about 49.03 per cent. According to the Ld. Departmental Representative, such a high margin by no stretch of imagination could be regarded as nominal or merely incidental to public utility functions, and unmistakably demonstrated that the assessee was rendering services at rates far in excess of cost and operating on commercial lines.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 11 is not entitled to claim the benefit of sections 11 and 12 of the Act and that the findings recorded by the lower appellate authority granting such relief deserve to be reversed.

17.1 Ld. Departmental Representative submitted that in the light of the binding pronouncements of the Hon’ble Supreme Court and the financial results disclosed by the assessee for the relevant year, the case of the assessee squarely falls within the mischief of the proviso to section 2(15) of the Act, and therefore the Department’s stand in denying exemption is fully justified and deserves to be upheld.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 12 136 and 153 of the said judgment were highlighted to show that, after the 2015 amendment, GPU units may undertake such activities only when they are intrinsically part of the actual carrying out of their public utility objects and when the receipts from such activities do not exceed twenty per cent of the total receipts for the year.

18.1 The counsel for the assessee submitted that in paragraphs 142 to 144 and 150 to 151 the Supreme Court gave a purposive interpretation to the expressions “fee, cess or other consideration” and categorically held that Statutory Authorities performing regulatory or developmental functions for the general public, and collecting amounts pursuant to statutory mandate, do not thereby become commercial enterprises. It was specifically pointed out that the Hon’ble Supreme Court observed that statutory boards engaged in town planning, housing, industrial development, water supply, sewage, food distribution or similar public services, and charging only cost or nominal mark-up, cannot be characterised as engaging in business, and that the mere nomenclature of a levy as a “fee” or “cess” is not determinative. These principles, according to the counsel, directly apply to Gujarat Maritime Board, whose functions under its parent Act are to develop and regulate ports in public interest and whose tariffs and charges are statutorily regulated. The counsel for the assessee placed reliance on relevant paragraphs where the Hon’ble Supreme Court harmonised section 2(15) with sections 11(4A), 10(23C) and section 13(8) of the Act and held that the ploughing back of surplus is no longer decisive, but that what matters is whether the activity generating receipts is inseparably linked to the GPU object and whether the quantitative threshold is respected. The counsel submitted that these paragraphs make it clear that charging amounts on cost basis or with marginal surplus while carrying out statutory public functions does not attract the mischief of the proviso, and that the Commissioner of Income-tax (Exemptions) is duty-bound to examine these aspects year-wise before denying exemption. The counsel then drew particular attention to relevant

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 13 paragraphs where the Court dealt at length with statutory corporations and authorities. It was submitted that Hon’ble Supreme Court has held that statutory bodies supplying essential public services should not ordinarily have their receipts treated as commercial, because doing so would defeat the very object of general public utility. Paragraph 179 was highlighted as being of decisive importance for Gujarat Maritime Board, because there the Supreme Court referred to its earlier ruling in CIT v. Gujarat Maritime Board and categorically rejected the Revenue’s contention that once a body ceases to be a “local authority” under section 10(20) it cannot seek exemption under section 11 of the Act. The Hon’ble Supreme Court held that sections 10(20) and 11 of the Act operate in different spheres and that even if the Board was not a local authority, it could still claim exemption under section 11 by satisfying section 2(15) of the Act. The Hon’ble Supreme Court also relied on the decision in Andhra Pradesh Road Transport Corporation to show that statutory corporations carrying out public functions can qualify as GPU charities. The counsel further relied upon paragraphs 180 to 188, where the Supreme Court rejected the narrow construction adopted by the Revenue that denial of exemption under section 10(20A) or section 10(46) automatically bars relief under section 11 of the Act, and held that these provisions confer overlapping but distinct benefits. It was submitted that paragraph 190 lays down the controlling tests which the Commissioner (Exemptions) must apply, namely whether the Statute mandates advancement of public purposes such as infrastructure development and regulation, whether the rates charged are cost-based or nominal, whether surpluses are statutorily controlled and ploughed back for public use, the extent of governmental control, and whether any receipts from activities resembling trade or commerce remain within the twenty-per-cent cap. According to the counsel, Gujarat Maritime Board satisfies all these parameters because it is created by statute to discharge sovereign-type public functions, its charges are regulated and its income is required to be used only for statutory purposes. It was further submitted that paragraph 253, which summarises the conclusions of the judgment,

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 14 is binding on the Commissioner (Exemptions) and mandates a yearly factual examination of the assessee’s receipts to see whether they are merely cost-based or significantly higher, and only thereafter to apply the proviso to section 2(15) of the Act. The counsel contended that this paragraph expressly clarifies that neither statutory nor non-statutory bodies advancing general public utility are automatically excluded from exemption and that denial can arise only if, on facts, the quantitative limits are breached. On an overall reading of these paragraphs, the counsel for the assessee submitted that the AUDA ruling does not lay down any blanket exclusion for Statutory development authorities; rather, it affirms that such bodies remain eligible for exemption under sections 11 and 12 of the Act so long as their dominant statutory purpose is advancement of general public utility and their receipts arise from activities intrinsically linked to those purposes. It was therefore submitted that when these authoritative principles are applied by the Commissioner of Income-tax (Exemptions) to Gujarat Maritime Board, the Board must necessarily be regarded as a GPU charity entitled to exemption under sections 11 and 12 and not hit by the proviso to section 2(15) merely because it collects statutory charges in the course of performing its public maritime and port- development functions.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 15 that such activities partake the character of trade, commerce or business. According to him, the charging of fees, levies or consideration for allotment of land and provision of amenities clearly attracts the proviso to section 2(15), and therefore the assessee ceases to be a charitable institution for the year under consideration. Per contra, the learned counsel for the assessee has submitted that the assessee is a statutory body created to discharge public functions of development, regulation and infrastructure creation in the larger public interest, that all its activities flow directly from the parent statute, that the receipts are statutorily authorised and inextricably linked with such public purposes, and that the entire surplus, if any, is mandatorily ploughed back for carrying out those objects. Heavy reliance has been placed on the authoritative pronouncement of the Hon’ble Supreme Court in Assistant Commissioner of Income-tax (Exemptions) v. Ahmedabad Urban Development Authority reported in [2022] 143 taxmann.com 278 / 449 ITR 1 / [2023] 291 Taxman 11 (SC) as clarified in [2022] 144 taxmann.com 78 / 449 ITR 389 / [2023] 290 Taxman 137 (SC), and the subsequent High Court decisions applying the said ratio to development authorities and statutory corporations.

20.1 We find that in the AUDA judgment the Hon’ble Supreme Court undertook an exhaustive examination of the legislative history of section 2(15) of the Act, the introduction of the provisos thereto, and the manner in which such provisions interact with sections 11, 12 and 13. The Hon'ble Supreme Court held that after the 2015 amendment, the traditional “predominant object” test is no longer decisive by itself and that two controlling factors are required to be examined, namely, first, whether the activity which generates receipts is intrinsically connected with and in the course of actual carrying out of the object of general public utility, and secondly, whether the receipts from such activity exceed the quantitative threshold prescribed in the proviso. The Court further explained that statutory bodies engaged in housing, town planning, industrial development and

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 16 similar essential public services cannot automatically be branded as commercial enterprises merely because they recover charges, fees or consideration, since such recoveries are often integral to the statutory scheme and are regulated by law. What is required is a careful year-wise scrutiny of the nature of receipts, the statutory framework, the manner of fixation of rates, the destination of surplus and the extent of governmental control.

20.2 We also note that in Commissioner of Income-tax (Exemption) v. Khurja Development Authority reported in [2025] 179 taxmann.com 463 / [2025] 307 Taxman 382 (SC), the Hon’ble Supreme Court reiterated that the AUDA decision lays down the determinative tests for deciding whether a development authority serves a charitable purpose and that those principles must be applied to the admitted facts of each case. The remand in that case was occasioned only because the High Court had not analysed the factual matrix; significantly, the Supreme Court reaffirmed that AUDA governs the field and must guide all such adjudications.

20.3 Coming to the High Court decisions on this issue, we find that the Punjab & Haryana High Court in Commissioner of Income-tax v. Haryana Rural Development Fund Administration Board [2024] 165 taxmann.com 379 (P&H) has held that a Statutory board constituted for augmenting agricultural production and rural infrastructure, undertaking activities such as construction of roads, dispensaries, water supply, sanitation and storage facilities and collecting statutory fees for such purposes, was clearly engaged in advancement of objects of general public utility even under the amended definition in section 2(15) of the Act, and was therefore entitled to registration under section 12AA. The Court held that such activities are quintessential public functions and the statutory levy of fees does not convert them into commercial ventures.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 17 20.4. The Rajasthan High Court in Commissioner of Income-tax (Exemptions) v. Jaipur Development Authority [2024] 166 taxmann.com 5 (Raj.) applied the ratio of AUDA to hold that a Development Authority engaged in developing areas, providing civic amenities and allotting land could not be denied exemption under section 11 merely because of the proviso to section 2(15) of the Act, as the receipts were directly connected with discharge of statutory public duties and were prima facie excluded from the mischief of business or commercial receipts.

20.5 The Gujarat High Court in Commissioner of Income-tax (Exemptions), Ahmedabad v. Gujarat Industrial Development Corporation [2025] 181 taxmann.com 940 (Guj.) has taken the same view in respect of an industrial development corporation established under a State Act, holding that sale of plots and collection of charges incidental to development of industrial estates, roads, drainage and water supply did not amount to trade or business so as to attract the proviso to section 2(15), and that exemption under section 11 could not be denied when such activities were inseparable from the statutory objects.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 18 commercial objectives and that, having regard to the scale of its receipts, surplus generation and certain heads of income highlighted by him during the course of hearing, the assessee falls within the mischief of the proviso to section 2(15) of the Act. The learned Departmental Representative has drawn our attention to the audited accounts of the assessee and submitted that the assessee earns substantial income from port charges, wharfage, berth hire, pilotage, vessel traffic services, lease rentals from port lands, interest income on deposits and other user charges. It was contended that the magnitude of such receipts, the consistent generation of surplus year after year and the accumulation of reserves demonstrate that the assessee is functioning on commercial lines akin to a business enterprise rather than as a charitable institution. According to him, the assessee competes with private port operators, levies market-linked tariffs and enters into concession agreements with private entities, which, in his submission, establishes that its dominant character is commercial and profit-oriented.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 19 measures, port infrastructure, coastal development and allied public functions. The charges highlighted by the learned Departmental Representative—such as port dues, vessel-related charges, cargo handling charges, lease rentals of port lands and interest on statutory reserves are not shown to be receipts from any activity alien to this statutory mandate. In fact, these heads of income arise directly from the discharge of port and maritime functions which the statute obliges the assessee to perform in the public interest.

24.1 We further note that the learned Departmental Representative has not demonstrated that the tariffs or charges are freely fixed by the assessee in an unfettered commercial manner. The material on record indicates that port tariffs and user charges are governed by statutory rules, governmental policies and regulatory oversight. The assessee is also subject to pervasive control of the State Government in matters of policy, utilisation of funds, capital expenditure and development planning. Such a statutory and regulatory framework, as explained in the AUDA judgment and reiterated in the decisions of the High Courts in the cases of development authorities and industrial corporations, in our view, militates against the characterisation of the assessee as an ordinary commercial undertaking.

24.2 As regards the generation of surplus and accumulation of reserves emphasised by the learned Departmental Representative, we find that there is no evidence to suggest that such surplus is distributed to any private stakeholder or diverted for non-statutory purposes. On the contrary, the accounts show that surpluses are earmarked for port development, dredging projects, safety infrastructure, expansion of facilities, coastal protection works and creation of capital assets necessary for the performance of statutory obligations. The Hon’ble Supreme Court in AUDA has expressly recognised that even where statutory authorities generate surplus in the course of carrying out public utility functions,

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 20 such surplus does not ipso facto render their activities commercial, so long as it is ploughed back into achieving the statutory objects and the activities themselves are intrinsically connected with those objects.

25.1 Significantly, the learned Departmental Representative has also not segregated any specific stream of income which can be said to arise from an activity not in the course of actual carrying out of the assessee’s public utility objects. In the absence of such a factual demonstration, the proviso to section 2(15) cannot be mechanically invoked merely on the basis of scale of operations or size of surplus.

25.2. At this stage, it is necessary to examine the statutory policy and regulatory functions entrusted to Gujarat Maritime Board under the Gujarat Maritime Board Act, 1981. The Board has been constituted as a specialised statutory authority to plan, regulate, develop and manage minor ports in the State of Gujarat in a coordinated and integrated manner. Its functions include formulation of port

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 21 development policy, preparation and approval of master plans for ports, regulation of port operations, control of vessel traffic, maritime safety and security, dredging policy, coastal zone protection, disaster management in coastal areas, and coordination with Central Government agencies and defence authorities. These functions are core sovereign and regulatory responsibilities discharged in public interest pursuant to statutory mandate. As explained by the Hon’ble Supreme Court in Assistant Commissioner of Income-tax (Exemptions) v. Ahmedabad Urban Development Authority (2022) 143 taxmann.com 278 (SC), particularly in paragraphs 142, 150 and 179, activities which are regulatory, supervisory and policy-oriented in nature, undertaken pursuant to statutory obligation, do not partake the character of trade, commerce or business. Such functions are inherently incapable of being performed by private entities and clearly fall within the ambit of “advancement of any other object of general public utility”.

25.3. We observe that Gujarat Maritime Board levies port dues, berth hire, wharfage, pilotage charges, vessel traffic service charges, lease rentals for port land, harbour craft charges and other port-related user fees. On an overall appreciation of the statutory scheme and the material on record, these receipts are found to arise directly from the discharge of statutory port management and regulatory functions. These services are inseparable from the obligation of the Board to ensure safe, efficient and regulated maritime operations. The charges levied are not the result of unfettered commercial pricing but are governed by statutory provisions, governmental resolutions and regulatory oversight. The Hon’ble Supreme Court in Ahmedabad Urban Development Authority (supra), particularly in paragraphs 153, 176 and 190(iv)(a), has clarified that recovery of fees or consideration in the course of performing statutory public functions does not, by itself, render the activity commercial, where such recovery is intrinsically linked to the execution of public utility objects. In the present case, there is no material to indicate that the Board carries on any activity unrelated to its statutory

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 22 mandate or that the services rendered are driven by an independent profit motive divorced from port development and maritime regulation.

25.4. Further, we are of the considered view that while certain operational activities within ports, such as cargo handling, terminal operations or warehousing, may be undertaken by private entities under concession agreements or public-private partnership arrangements, such participation operates strictly within the framework devised and regulated by Gujarat Maritime Board. The authority to declare ports, regulate vessel entry and movement, levy statutory port charges, undertake dredging, ensure navigational safety, enforce environmental and security norms, allocate port land and plan long-term maritime infrastructure vests exclusively with the Board under the governing statute. Private entities neither possess nor can exercise these regulatory and sovereign powers. As recognised by the Hon’ble Supreme Court in Ahmedabad Urban Development Authority (supra), particularly in paragraphs 179, 187 and 190(iv)(f), the existence of regulated private participation does not dilute the public and statutory character of a development authority nor does it convert such authority into a commercial enterprise. The services rendered by Gujarat Maritime Board therefore fall within a restricted statutory domain and are incapable of being independently undertaken by private entities, and accordingly remain within the scope of charitable purpose as defined under section 2(15) of the Act.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 23 within the ambit of “advancement of any other object of general public utility” and is entitled to exemption under sections 11 and 12 of the Act for the year under consideration.

Ground Number 2: remitting of issue of taxation to the Assessing Officer 28. We observe that the learned Commissioner (Appeals), while adjudicating the grounds raised before him, has specifically recorded a categorical finding that there is no discussion whatsoever in the assessment order dated 29.12.2019 regarding the basis or reasoning for denial of the said claim. The CIT(Appeals) has further observed that even in the written submissions filed before him, the Assessing Officer had not elaborated the factual or legal foundation for such disallowance. In these circumstances, the learned Commissioner (Appeals) held that the matter required fresh verification at the assessment stage and, accordingly, directed the Assessing Officer to examine the claim and to take necessary action in accordance with law after due verification.

Ground Number 3: CIT(Appeals) erred in holding that AO was incorrect in invoking S. 13(1)(d) ignoring the categorical finding by AO that investment was made in contravention to provision of S. 11(5) r.w.s 13(1)(d) of the Act

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 24 31. Before us, the counsel for the assessee submitted that the issue has been decided in favour of the assessee in favour of Assessee in ITA No. 300/Ahd/2019 vide order dated 29.03.2023 for A.Y. 2015-16 in the assessee’s own case and also in ITA No. 88/Ahd/2020 for A.Y. 2016-17.

31.1. Respectfully following the decision of the Ahmedabad Bench of the Tribunal in the case of Gujarat Maritime Board for Assessment Years 2015-16 and 2016-17 pronounced on 29-03-2023, and in particular paragraphs 9 to 13 thereof, wherein it has been categorically held that even in a case where there is a violation of section 11(5) attracting section 13(1)(d) of the Act, the consequence is only that the income arising from such impermissible investments alone would lose the benefit of exemption and that the exemption under sections 11 and 12 cannot be denied to the entire income of the assessee, and further that addition of tax deducted at source to the income available for application is not sustainable in law, we hold accordingly on the identical issues arising in the present appeal.

31.2. In view of the aforesaid binding precedent in the assessee’s own case, the Assessing Officer is directed to restrict the denial of exemption, if any, only to the income relatable to the investments held to be in violation of section 11(5) and not to withdraw exemption under sections 11 and 12 in respect of the entire income of the assessee. The addition made on account of tax deducted at source by treating the same as income available for application is directed to be deleted.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 25 Now we shall discuss the assessee’s Grounds of Appeal for assessment Year 2017-18

CIT(Appeals) erred in confirming addition of Rs. 40,62,80,024/- being depreciation as per the IT Act, which was never claimed / granted as application of income u/s 11(6) in current year or any earlier previous year

33.1. Before us, the counsel for the assessee submitted that the issue may be set aside to the file of CIT(Appeals) for carrying out necessary verification and give appropriate relief with respect to cost of those assets for which the assessee never claimed application of income and therefore for which the assessee is entitled to claim depreciation thereon since the same does not amount to double deduction.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 26 Now we shall deal with the assessee’s and Department’s appeal for Assessment Year 2018-19

i. Ld. CIT(A) erred in law and on facts in confirming addition of Rs. 40,44,35,886 being Depreciation as per Income-tax Act, 1961 which had never been claimed and granted as an application of income under Section 11(6) in same or any earlier previous year. ii. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 37. We have dealt with this issue while dealing with Ground Number 1 of the assessee’s appeal for Assessment Year 2017-18.

i. Grounds No.1 Whether in the facts and in the law the Ld.CIT(A) was right in holding that the assessee is eligible for deduction u/s 11 & 12 of the Act ignoring the facts that the assessee is hit by proviso to section 2(15) of the I.T. Act-1961 and therefore r.w.s.13(8) of the Act was not eligible for any deduction u/s.11 & 12 of the Act, especially of the fact that it is rendering services not at cost or nominal markup and carrying out its activity in commercial manner with profit motives? ii. Ground No.2: Whether in the facts and in the law the Ld. CIT(A) was right in remitting the issue of taxation of dividend without any specific finding to be decided de-nova when he has no power to set aside the issue and also ignoring the provisions of section 11 of the Act? iii. Ground No 3: Whether in the facts and in the law the Ld. CIT(A) was right in holding that the AO was incorrect in invoking provision of section 13(1)(d), when the Assessing Officer had given categorical finding that the investment was made in contravention to provision of section 11(5) r.w.s. 13(1)(d) of the Act ? iv. Ground No.4. Whether in the facts and in law the Ld.CIT(A) was right in allowing exemption u/s 11(1)(d) of the Act of capital grant claimed by the assessee, especially when assessee is hit by proviso to section 2(15) of the I.T. Act-1961 and therefore rw.s.13(8) of the Act, the assessee was not eligible for any deduction u/s 11 & 12 of the

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 27 Act, alternatively the said grant received was to be reduced from the cost of assets u/s 43 of the Act or the same was otherwise taxable u/s.2(24)(xviii) of the Act. v. This is further to certify that the tax effect involved in the present case is Rs.84,73,02,571/- which is above the monitory limit specified in the CBDT's Circular no. 17/2019 dated 08.08 2019. 40. Ground Number 1 of the Department’s appeal has already been decided while dealing with the Department’s appeal in Ground Number 1 for assessment year 2017-18.

Now we shall deal with the assessee’s and Department’s appeal for Assessment Year 2019-20

i. Ld. CIT(A) erred in law and on facts in confirming addition of Rs. 45,87,24,415 being Depreciation as per Income-tax Act, 1961 which had never been claimed and granted as an application of income under Section 11(6) in same or any earlier previous year. ii. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 45. We have dealt with this issue while dealing with Ground Number 1 of the assessee’s appeal for Assessment Year 2017-18.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 28 47. The Department has raised the following Grounds of Appeal for Assessment Year 2019-20:

i. Grounds No.1 Whether in the facts and in the law the Ld.CIT(A) was right in holding that the assessee is eligible for deduction u/s 11 & 12 of the Act ignoring the facts that the assessee is hit by proviso to section 2(15) of the I.T. Act-1961 and therefore r.w.s.13(8) of the Act was not eligible for any deduction u/s.11 & 12 of the Act, especially of the fact that it is rendering services not at cost or nominal markup and carrying out its activity in commercial manner with profit motives? ii. Ground No.2: Whether in the facts and in the law the Ld. CIT(A) was right in remitting the issue of taxation of dividend without any specific finding to be decided de-nova when he has no power to set aside the issue and also ignoring the provisions of section 11 of the Act. ? iii. Ground No 3: Whether in the facts and in the law the Ld. CIT(A) was right in holding that the AO was incorrect in invoking provision of section 13(1)(d), when the Assessing Officer had given categorical finding that the investment was made in contravention to provision of section 11(5) r.w.s. 13(1)(d) of the Act ? iv. Ground No.4. Whether in the facts and in law the Ld.CIT(A) was right in allowing exemption u/s 11(1)(d) of the Act of capital grant claimed by the assessee, especially when assessee is hit by proviso to section 2(15) of the I.T. Act-1961 and therefore rw.s.13(8) of the Act, the assessee was not eligible for any deduction u/s 11 & 12 of the Act, alternatively the said grant received was to be reduced from the cost of assets u/s 43 of the Act or the same was otherwise taxable u/s.2(24)(xviii) of the Act. v. This is further to certify that the tax effect involved in the present case is Rs.84,73,02,571/- which is above the monitory limit specified in the CBDT's Circular no. 17/2019 dated 08.08 2019. 48. Ground Number 1 of the Department’s appeal has already been decided while dealing with the Department’s appeal in Ground Number 1 for assessment year 2017-18.

49.1. Ground Nos. 2, 3 and 4 of the Department’s appeal has already been decided while dealing with the Department’s appeal in Ground Number 2 and 3 for assessment year 2017-18.

ITA No. 440/Ahd/2022 & 117&118/Ahd/2023 & ITA No. 561/Ahd/2022 & 211&212/Ahd/2023 A.Y. 2017-18, 2018-19 & 2019-20 29 51. In the combined result, appeal of the assessee are allowed for statistical purposes and appeals of the Department are partly allowed for statistical purposes.

Order pronounced in the open court on 13-05-2026

Sd/- Sd/- (DR. B.R.R KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad: Dated : 13/05/2026 Nk/Tanmay TRUE COPY आदेश की �ितिलिप अ�ेिषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) concerned 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद

Strengthened preparation & delivery of orders in the ITAT 1) Date of dictation (word processed by H-JM in his comp.) 06/02/2026 2) Date on which the typed draft is placed before the Dictating 06/02/2026 Member & Other Member 3) Date on which the approved draft comes to the Sr. P.S./P.S. 18-02-2026 4) Date on which the fair order is placed before the Dictating Member for pronouncement 5) Date on which the fair order comes back to the Sr. P.S./P.S. 6) Date on which the file goes to the Bench Clerk 13.05.2026 7) Date on which the file goes the Head Clerk 8) Date on which the file goes to the Assistant Registrar for signature on the order 9) Date of Dispatch of the order